Oak Creek Units 1 & 2

Wisconsin Energy (WE) completed Oak Creek Unit 1 in February 2010. Oak Creek Unit 2 had been expected to be operational in November 2010 but was delayed by a pump problem and began operating in January 2011.

As of January 2009, construction costs for plant had significantly increased, from the original $2.2 billion to nearly $2.7 billion. Additional costs more than 5% above the initial price need approval from Wisconsin's Public Service Commission.

Licensing Challenges
The project’s water permit – which allows WE to intake two billion gallons of water from Lake Michigan each day, and pipe it back into lake 10-15 degrees warmer – was legally challenged by the Sierra Club and Clean Wisconsin. This type of cooling system is illegal in Illinois and Indiana, but legal in Wisconsin; Illinois Attorney General Lisa Madigan has also spoken out against the project’s cooling system. The water permit was issued on the basis of a recent U.S. EPA rule change, which allowed the plant to be considered an existing facility, rather than a new facility. In an internal EPA email in 2004, EPA scientist Peter Howe criticized the rule change, and was later censured by a supervisor for speaking out against it. The Citizens’ Utility Board also opposes the project, as WE would significantly raise electricity rates over the next several years to help pay for the plant’s construction.

On March 9, 2007, a Dane County Circuit Judge ruled in favor of the Sierra Club, arguing that WE Energies’ water permit for the plant does not comply with a recent federal appeals court decision, and rejecting the argument that this was an existing rather than a new plant; the judge sent this decision to the Wisconsin administrative courts for review. On Nov. 29, 2007, a state administrative judge backed the earlier decision, blocked the plant’s water return pipe, and directed the state Department of Natural Resources to modify or reissue the water permit. WE Energies refused to accept the judge’s decision, continuing to build the pipe and arguing that it meets federal standards.

In August 2008, a settlement was reached in the the legal battle over the water intake structure. According to the terms of the settlement agreement, Clean Wisconsin and the Sierra Club will withdraw their legal challenges permit in return for $100 million for Lake Michigan protection projects over a 25 year period and significant steps to address global warming. The terms of the agreement include: The ERGS owners (We Energies, Madison Gas and Electric, and Wisconsin Public Power Inc.) will fund $4 million per year from 2010 through 2035 for Lake Michigan; We Energies will retire two coal-fired units in Presque Isle, Michigan; We Energies will ask the Public Service Commission for approval to construct 50 megawatts of 100 percent biomass-fueled power in Wisconsin; the ERGS owners will purchase or construct 15 megawatts of solar generation by Jan. 1, 2015; and the ERGS owners agree to support legislative efforts to establish a renewable energy portfolio standard of 10 percent by 2013 and 25 percent by 2025.

In July 2009 Governor Jim Doyle announced the formation of the Wisconsin Climate Change Action Initiative with an initial $5 million contributions from We Energies, Madison Gas & Electric and WPPI Energy. Doyle stated that the group would work "to increase voluntary conservation practices that will save money and have positive environmental impacts" and "will focus on providing education, practical advice and expertise to residents, communities and businesses." Doyle stated that initial funding would be "provided through a $5 million contribution from We Energies, Madison Gas & Electric and WPPI Energy under an agreement with Clean Wisconsin and Sierra Club to resolve outstanding permit issues" related to the Oak Creek Units 1 & 2.

Explosion at Oak Creek facility
On February 4, 2009, six people were injured during an explosion and fire at Oak Creek power plant. The explosion occurred at a plant silo used to collect dust after coal is dumped into the hopper. All of the people hurt were contractors working in the hopper at the time. The most severely burned patient suffered second- and third-degree burns on his hands, face and back.

Wisconsin Energy said the area where the explosion occurred was not part of the new construction on the facility.

Wisconsin Energy raising rates
On July 2, 2009, WE filed a rate increase request with the Michigan Public Service Commission (PSC) to offset some of the $2.3 billion construction costs for the Oak Creek units. If approved by the PSC, Michigan customers could see their energy bills increase up to 33 percent. The average total monthly increase would be about $37 per customer.

Michigan regulations require energy companies to wait until a new power plant is operating before raising rates. However, Wisconsin has already allowed WE to increase rates to offset construction costs. As a result, Wisconsin customers will not see the same dramatic increases once the plant is in service.

Litigation settlement uncertain
Environmental groups refused to revise a deal to settle litigation over Oak Creek to address concerns raised by state regulators. The proposed settlement would see the Sierra Club and Clean Wisconsin drop their challenge to environmental permits issued for the project, in exchange for a WE commitment to fund environmental projects in Lake Michigan and expand renewable energy projects in the state. Under the agreement, We Energies, Madison Gas & Electric Co., and WPPI Energy would spend $4 million per year for 25 years on projects to improve water quality in Lake Michigan. An additional $5 million would be allocated to create a nonprofit group focused on efforts to reduce global warming emissions. PSC regulators are hesitant to raise customer rates to fund the Lake Michigan projects, which could prompt the environmental groups to revive their lawsuits. If the groups win, the cost of litigation could add more than $1 billion to the cost of the power plant, as opposed to the $100 million cost of the settlement.

July 2010: Michigan U.P. customers to pay $23 million for Oak Creek coal plant
On July 1, 2010, regulators in Michigan rejected arguments by customers of We Energies that the utility's new coal-fired power plant in Oak Creek is not needed because Wisconsin and Michigan's Upper Peninsula have sufficient power. The Michigan Public Service Commission (PSC) rejected proposals by the Michigan attorney general, and gave We Energies permission to start collecting from Michigan customers for the new power plant.

The plant was proposed when Wisconsin was running short on power and experienced power supply problems in the late 1990s. But the recession caused a dramatic drop in electricity sales, and mine operator Cleveland Cliffs argued the power plants should not be billed to the company and 28,000 other Michigan customers of the utility. Regardless, in a ruling that will raise rates in Upper Michigan by $23 million, the Michigan PSC said, "It is improper to use hindsight to second guess (We Energies') decision in 2002 to add capacity to its generation system."

The coal-burning plant is opening in two phases, with the first unit opening early 2010 and the second unit projected to open in August or September 2010. Because the second unit has not opened, Michigan customers won't have to pay for that yet. The company had initially proposed to raise rates of Michigan customers by 33%, or $42 million, but because the second unit is not opened, the rate increase will be $23 million. The Michigan PSC allowed a portion of that rate increase - $12 million - to take effect in February 2010, at the time We Energies took over control of the first Oak Creek coal unit from its contractor, Bechtel Power Corp.

To address the fact that We Energies has more power than it needs, the Michigan PSC said it will investigate whether it still makes sense for the Milwaukee power company to be buying power from a Calpine Corp. natural gas-fired power plant in Zion, Illinois. That matter would be resolved in a future case. The Michigan commission also was asked to weigh in on whether We Energies should be allowed to receive a 12.7% return on its investment in the $2 billion coal-burning plant project. In Wisconsin, the rate of return for that investment was locked in for 30 years. Michigan's attorney general objected to that as excessive, but the Michigan PSC ruled those objections should have been raised in a separate case several years ago.

Increased customer rates and industry profits
In Feb. 2011, it was reported that investment in the Oak Creek power plant provided the lion's share of Wisconsin Energy's earnings boost in 2010, and the power plant will be the biggest reason profit will increase in 2011. The utility holding company announced record profit on Feb. 1, 2011, and reaffirmed its forecast for higher earnings in 2011 during a conference call with investment analysts. Profit from continuing operations increased 20% to $3.84 a share: "Roughly 80% of the increase in our earnings for 2010 was the result of the investment we've made in the first generating unit at Oak Creek," Wisconsin Energy Chairman and Chief Executive Officer Gale Klappa said. In 2011, with nearly a full year of profit from the second Oak Creek unit, operating earnings are projected to rise by 7% to 9%, to $4.10 to $4.20 a share.

The parent company We Energies raised prices for electricity customers in a series of rate increases while the power plants were under construction, including a big price hike in 2008 that was phased in over time. The 5% increase means the typical We Energies residential customer is now paying more than $104 a month for electricity. A typical bill was almost 40% higher last month than it was six years ago, the first year of construction of the power plant project. Customers could see another increase in the coming month or so, as the state Public Service Commission is expected to rule on a 1% hike linked to higher fuel costs for the utility's power plants.

Plant nine percent over budget
In a filing with securities regulators on Feb. 27, 2011, We Energies said customers may be on the hook for more money to pay for the Oak Creek power plant, based on latest estimates that indicate the project came in 8.7% over budget - adding $191 million to the price tag for the largest construction project in state history. The project initially was approved with a budget of $2.19 billion. Project delays blamed on litigation and permitting delays, as well as weather-related construction problems, have contributed to rising costs. The total price tag is now pegged at $2.38 billion.

A report by R.W. Beck & Co., a consultant hired by the state Public Service Commission (PSC) to review the progress of the construction, indicated that the cost for the second phase of the plant would come in about 9% over budget. The amount to be collected from We Energies customers is expected to be provided to the PSC in coming months as part of a proceeding to set rates in 2012 and 2013.

Coal Ash Waste and Water Contamination
In August 2010 a study released by the Environmental Integrity Project, the Sierra Club and Earthjustice reported that Wisconsin, along with 34 states, had significant groundwater contamination from coal ash that was not regulated by the Environmental Protection Agency (EPA). The report, in an attempt to pressure the EPA to regulate coal ash, noted that most states do not monitor drinking water contamination levels near waste disposal sites. The report mentioned Wisconsin's Columbia Energy Center and Oak Creek Power Plant as two sites that have groundwater contamination due to coal ash waste.

Other coal waste sites
To see a nationwide list of over 350 coal waste sites in the United States, click here. To see a listing of coal waste sites in a particular state, click on the map:



Project Details
Sponsor: Wisconsin Energy Corporation Location: Oak Creek, WI Capacity: 1230 MW Type: Pulverized coal Status: Unit 1 operating February 2010 ; Unit 2 operating January 2011

Financing

 * Morgan Stanley

Citizen Groups

 * Wisconsin Sierra Club, Shahla Werner, join.muir.chapter [at] sierraclub.org
 * Wisconsin Citizens Utility Board, Richard Storck, storck [at] wiscub.org
 * Clean Wisconsin, Mark Redsten

Related SourceWatch Articles

 * Coal plant litigation
 * Wisconsin and coal
 * United States and coal
 * Carbon Capture and Storage
 * Existing U.S. Coal Plants
 * US proposed coal plants (both active and cancelled)
 * Coal plants cancelled in 2007
 * Coal plants cancelled in 2008
 * State-by-state guide to information on coal in the United States (or click on the map)